Question 5 (20 points) Consider a setting where an incumbent (Firm 1) sinks capacity in Period 1, and a potential entrant (Firm 2) considers entry in Period 2 (which also involves investing in capacity). Industry inverse demand is given by p(k1, k2) = 4 - (k1 + 2), where ki, i = 1, 2 are the two firms' capacity investments. Neither firm faces production costs, but Firm 2 faces an entry cost of E > 0 if it chooses to enter in Period 2. You may ignore time discounting. (a) Explain what is meant by the 'Bain-Sylos postulate. [10 marks] (b) Eplain the concepts of blockaded, deterred and accommodated entry. [15 marks] (c) Discuss the extent to which the above model provides support for the idea that incumbent monopolists can protect themselves from potential entrants. (You do not need to provide calculations.) [75 marks] Paragraph v B IU